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Do central banks have a role in
financial inclusion?
David Ferrand, FSD Kenya
CBK@50 Symposium, Nairobi
September 2016
A lot of central banks certainly think so …
58 countries formal policy commitment to greater financial inclusion
46 led by central banks Maya Declaration of the Alliance for Financial Inclusion, 2016 data
Monetary policy: the primary central bank role
It is to ensure that:
• in good times the amount of money grows at a rate sufficient to maintain broad stability of the value of money
• in bad times the amount of money grows at a rate sufficient to provide the liquidity … to meet … the unpredictable swings in demand for it
Mervyn King, former Governor Bank of England
• The principal object of the Bank shall be to formulate and implement monetary policy directed to achieving and maintaining stability in the general level of prices.
• The Bank shall foster the liquidity, solvency and proper functioning of a stable market-based financial system.
• Subject to subsections (1) and (2), the Bank shall support the economic policy of the Government, including its objectives for growth and employment.
Central Bank of Kenya Act
Proposition 1
Stability concerns mean that central banks
necessarily have a role in financial inclusion
Long-term market development is associated with expansion -inclusion
Financial inclusion gone wrong: US sub-prime
Financial inclusion gone wrong: microlending
South Africa
• 2002: three microlenders collapsed
• Run on sixth largest bank (BoE)
• 2015: African Bank rescued by Reserve Bank
Financial inclusion gone wrong: perils of informality
Albanian pyramid schemes
• Two-thirds of the population invested
• Half the country's GDP• Rioting followed collapse• Government fell• 2,000 people died
Proposition 2
Stability and inclusion have a long-term
virtuous relationship
61%
62%
63%
64%
65%
66%
67%
68%
69%
70%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
US % rates of home ownership
Sub
-pri
me
cris
is
Stability is a sine qua non of real inclusion
• Short-term:trade-offs between inclusion and stability
• Long-term: inclusion without stability is illusory
Increased stability
Diversified deposit
base
Diversified credit
portfolios
Greater scale and efficiency Increased
economic stability
Sector political
legitimacy
Does inclusion support longer term stability?
Proposition 3
Central banks have a core role to play in
financial market development
Developing inclusive financial markets
Building trust
0%
10%
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30%
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50%
60%
70%
80%
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Microfinance Act
No objection to ‘M Pesa’
launch
National Payment
System Act
No objection to ‘M Pesa’
pilot
Payments regulation
commenced
Mobile based KYC
Agent banking introduced
Credit information
sharing
CBK’s role in Kenya’s inclusion journey